Federal office space cost cuts underway

By Ed O'Keefe and Jonathan O'Connell
Washington Post Staff Writers
Thursday, October 28, 2010; B3

President Obama wants to trim $3 billion worth of federal office space in the next two years, but early signs suggest mixed success at selling off office buildings, courthouses and data centers.

The federal government owns about 1.2 million facilities nationwide with a total operating and maintenance budget of about $19 billion, according to the Office of Management and Budget. An audit conducted during the George W. Bush administration found that the government owns 14,000 vacant buildings and underuses 55,000 other locations.

OMB and the General Services Administration unveiled plans in June to renegotiate or cancel building leases and sell excess property by the end of fiscal 2012. Most of the building cuts are expected to come from the departments of Energy, Homeland Security and Transportation, officials said.

Federal agencies submitted proposed property cuts last month, and the administration is more than halfway toward meeting the goal, officials said this week. Some examples include:

l Private developers Akridge and Rockwood Capital purchased a GSA building in Bethesda for $12.4 million in August.

l Plans were announced to sell Naval Air Station Treasure Island - used for civilian purposes since 1993 - to the city of San Francisco for $55 million. The government may receive an additional $50 million if private investors redeveloping the island achieve a certain level of return, OMB said. Official transfer of the island and payments won't occur until environmental reviews are completed, a process that can take several years.

l A federal office building in Springfield, Mass., sold for $2.4 million, and the city moved its school headquarters into the building. A health-care company plans to move in later this year.

The sale of the GSA's 10-story, 127,000-square-foot building in Bethesda signals potential problems for the government as it divests of properties, critics say. The building once housed offices of the National Institutes of Health but had been vacant for most of the recent real estate boom. The GSA put it up for sale this year in an online auction, receiving an opening bid of $100 after asking for $14 million, $1.6 million higher than the eventual winning bid.

GSA officials faulted an appraisal conducted before the market turned and the condition of the 46-year-old building.

A report released this month by Republican members of the House Transportation and Infrastructure Committee criticized the sale as an example of the government's mismanagement of real estate assets. The October report cited other local buildings, including the Old Post Office Pavilion on Pennsylvania Avenue NW, as being long underutilized but still in the government's portfolio.

The GSA and OMB would not comment further on the ongoing review of potential cuts.

Art Turowski, a broker at Jones Lang LaSalle and a former GSA official, said he had not seen the federal government dispose of other Washington area assets. The only sign of change locally, he said, was a slide in the number of prospectuses the government had issued for new space and some stringency on the GSA's part when agencies request new space.

"They're querying agencies on the justification for the square footages in the prospectuses," Turowski said.

The local result of the plan for cutbacks to this point has been "none whatsoever," according to Gregory H. Leisch, chief executive of the real estate research firm Delta Associates. That could change, however, if Republicans retake Congress and succeed in passing proposed government spending cuts, he said.

Agencies are also planning to consolidate about 2,000 government data centers that account for much of the government's building costs and environmental footprint. Government estimates initially suggested that agencies operated 1,100 data centers, but an inventory published last month discovered an additional 900 locations. OMB said it will unveil plans next month to consolidate the data centers.

ed.okeefe@washingtonpost.com oconnellj@washpost.com

O'Connell is a staff writer for Capital Business.

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